Benign Neglect

There's a pot of money available to investigate real estate fraud, but Terence Hallinan isn't using it

Every week, escrow agents, lawyers, brokers, and just plain citizens file thousands of documents with the San Francisco Recorder's Office, mostly legal forms, like deeds of trust, that are required for basic real estate transactions. And for almost two years, the recorder has been collecting a special $2 fee each time many of those documents have been filed.

Proceeds from the special fee are supposed to be used by District Attorney Terence Hallinan's office to fund a real estate fraud unit, paying for attorneys and investigators to root out and prosecute swindlers running real estate rackets or scams. Since the fee went into effect in January 1998, approximately $357,000 has piled up in a special trust fund set up by law for that specific purpose.

But while most other major California counties have long since taken advantage of similar fee programs to pursue real estate fraud cases, Hallinan has not used the bulk of the funds. Instead, the San Francisco DA's Office has yet to set up a special fraud unit, the money is languishing in the trust fund, and San Francisco is lagging far behind other counties in its pursuit of real estate crimes.

Tom Dougherty



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That's not what state lawmakers -- and the San Francisco Board of Supervisors -- envisioned when they approved the special assessment, and Hallinan's failure to tap into the fund has confounded attorneys who say there is probably plenty of real estate fraud to be found in San Francisco.

"The general feeling is that [Hallinan] could have done a lot more," says Norma Garcia, a staff attorney with the Consumers Union of San Francisco and author of a book on real estate fraud in California. "The public must be protected from people who make their living exploiting people."

Hallinan, his staff, and his press spokesman did not respond to repeated requests for an explanation of why his office has failed to set up a fraud unit and use the funds.

The money comes courtesy of state lawmakers. In 1995, realizing that prosecuting real estate fraud is a specialized task that requires diligence and expertise, the state Legislature decided to give district attorneys a potentially powerful weapon. It passed the Hughes Bill, a law allowing each of the state's 58 counties to assess the special $2 filing fee on five common document filings, but only if the money was dedicated to setting up units specifically for real estate fraud prosecution. Gov. Pete Wilson signed the law in October 1995, and it took effect the following January.

Several other California counties -- including Alameda, Contra Costa, and Santa Clara -- rushed to take advantage of the new law, since it afforded a sure stream of money, unaffected by annual local budget fights and virtually invisible to most taxpayers.

But San Francisco was slow to accept the gift. Under the law, the Board of Supervisors had to approve an ordinance establishing the fee and setting up a trust fund for the money. San Francisco's enabling ordinance was passed in October 1997, and took effect in January 1998.

At that time, Hallinan promised to look into the possibility of creating a special unit. "We see these cases involving fraud, particularly against the elderly all the time," Hallinan said during an interview with a television reporter. "We would really like the opportunity to devote a prosecutor to this."

Since then, the money has been rolling in, but Hallinan has put it to little use.

A small portion of the money -- about $22,000 -- has been drawn from the trust fund to pay for salaries and fringe benefits, according to Harold Guetersloh of the city Controller's Office.

The money apparently went to pay part of the salaries for investigator Karen Hibbitt-Walls and Deputy District Attorney Diane Knoles, who work on real estate fraud cases in an "informally designated unit," according to Hibbitt-Walls. "I work other cases too," Hibbitt-Walls says. She and Knoles are in the Special Prosecutions unit, and have been assigned some real estate fraud cases.

That's not the way the program is supposed to work. Far from being "informal," the program is supposed to pay for attorneys and investigators who are wholly assigned to pursue real estate fraud cases. To ensure that the money is being properly used, the law even requires a healthy dose of accountability.

But no one in San Francisco government appears to be paying any attention.

The San Francisco ordinance that set up the special fee -- approved unanimously by all nine current members of the Board of Supervisors -- also created an oversight committee to monitor the program, in compliance with state law.

The committee, comprised of Hallinan, City Attorney Louise Renne, and City Administrator Bill Lee, is supposed to conduct an annual review of the program. Hallinan's office is also supposed to write up an annual report and submit it to the Board of Supervisors so it can "review the effectiveness of the District Attorney in deterring, investigating, and prosecuting real estate fraud crimes," according to the ordinance.

But the committee has never met, and no report has ever been submitted.

"Never heard of the committee," Lee said when asked about it, though he is one of its three members. "We may have never had it in operation in the last couple of years. I may have assigned it to someone else on my staff. I know we're collecting funds."

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